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Reflections on the failure of the Taylor principle under commitment

Emanuel Barnea and Nissan Liviatan

Economics Letters, 2011, vol. 112, issue 1, 71-74

Abstract: We offer an explanation of why optimal policy under commitment requires weaker reaction to supply shock, reflected in the failure of the Taylor principle. This lesson seems to be prevalent among central banks and yet has been analyzed incomprehensively in the economic literature.

Keywords: Taylor; principle; Discretion; Commitment (search for similar items in EconPapers)
Date: 2011
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Handle: RePEc:eee:ecolet:v:112:y:2011:i:1:p:71-74